Chinese Premier Li Keqiang reached India on May 19 evening at the start of a two-day four-nation visit. In a transparently feeble attempt to create a favourable atmosphere, vitiated by China’s deliberate and extended intrusion recently in the Aksai Chin area, Beijing sought to advertise that Li Keqiang’s first visit abroad as premier included India. The primary responsibility of China’s premiers is the economy, and Li Keqiang too comes to India with a predominantly economic agenda intending to offer industrial loans and attract investments. His choice of Mumbai, to address a gathering of prominent businessmen, reinforces this.
The border issue will certainly figure in discussions, but the Chinese premier will adhere to his given script and show no flexibility. Li Keqiang, who has a doctorate in economics and is fluent in English, will focus on developing economic ties beneficial to Beijing while setting aside contentious issues.
Meanwhile, there are fresh reports of a downturn in China’s economic growth prompting revived speculation as to whether China’s new leaders would continue with the next and more difficult phase of economic reforms. Figures released last fortnight by China’s National Statistics Bureau hint that the reduced growth rate target of 7.5% might be achieved with difficulty. An additional concern is the rise in inflation over the past couple of months attributed to an increase in food prices. Concerns have been accentuated in recent weeks by the yuan’s 15-year high versus the Japanese yen, which will adversely affect China’s exports and give Japan an edge. Analysts point out that Japanese exporters are now more competitive than they have ever been against their Chinese counterparts during the past 20 years. This coincides with a time when China is trying to boost domestic consumption and its export-driven sectors are already under pressure. A more serious debate is simultaneously underway as to the pace and scope of economic reform policies that the new leaders should adopt.
China’s President Xi Jinping and Premier Li Keqiang have both asserted that there would be no compromise in the maintenance of ‘social stability’ and that a growth rate of around 7.8% is essential. The composition of the new Politburo Standing Committee (PBSC) suggests that while economic reforms would continue, bold reform policies are unlikely. Hint of this conservative stance was evident in former Premier Wen Jiabao’s ‘Work Report’ presented at the National People’s Congress (NPC) session this March. It avoided any reference to political reforms and mentioned economic reforms in one brief paragraph. Neither will the economic clout wielded by China’s 189 State-owned-Enterprises (SoE)s, which control over 60% of the national economy, diminish. The influence wielded by the SoEs, many of whose chief executives are ranked equivalent to central ministers, is reflected in their being represented by 52 deputies in the NPC. It was evidenced again when the authoritative party mouthpiece People’s Daily, front-paged articles four days in a row till April 21, highlighting the positive contributions of SoEs to the national economy.
An important article in the ongoing debate on economic reforms is one written in late March by Tsinghua University professor Sun Liping, who was Xi Jinping’s doctoral tutor. Calling for a new approach, Sun Liping described society as deeply divided on the issue and said this is especially obvious when the views of officials and those of civil society are compared. While officials view making changes to specific parts of a system as reform, the people, on the other hand, regard efficiency and fair competition as reform. Observing that economic and political reforms go hand-in-hand, he anticipated that societal tensions could reduce in the short term while vested interests wait and watch, but that the number and severity of conflicts will increase after five years.
Indicating the leadership’s concern, a meeting of the PBSC presided over by Xi Jinping was convened on April 25, to discuss the economy. The meeting focused on boosting agriculture and domestic consumption, controlling inflation and promoting external economic stability and development. It also recommended increasing imports of energy resources, advanced technology and equipment, and expanding the financial, logistics and service sectors. It urged support for overseas investment in major projects in key areas and for optimising the utilisation of foreign investment. Xi Jinping had earlier commissioned the study of seven areas of potential economic reform, including loosening State controls on bank interest rates and on resource prices.
At the same time Xi Jinping’s declared ambition is to make China rich, militarily strong and ensure the Chinese Communist Party (CCP)’s ruling position. Included in his brain-trust is 60-year-old US-educated Liu He, who has a proven background in economic work. Additionally, Li Keqiang sought to show his commitment to economic reforms by mentioning ‘reform’ 29 times at his first press conference as premier. He has also selected the pro-reform Lou Jiwei as finance minister and others of proven competence as the commerce minister and to head economic departments. This team is assisting Xi Jinping and Li Keqiang finalise their economic blueprint for the next decade, which they will present to the Party Central Committee’s third Plenum this October for approval.
While Li Keqiang presents his proposals and China grapples with a difficult domestic economic situation, New Delhi must remember that China has on several occasions already demonstrated its readiness to use trade and economic ties to pressurise countries on issues that it perceives affect its sovereignty and territorial integrity. The warning to Japan and the Philippines, that improving economic ties will not translate into good bilateral relations unless they accept China’s sovereignty and territorial ‘core’ interests, was pointedly publicised.
Jayadeva Ranade is a member of the National Security Advisory Board (NSAB) and former Additional Secretary in the Cabinet Secretariat, Government of India
The views expressed by the author are personal